Double Or Nothing

While every MHP has unique issues and opportunities, one characteristic almost every turnaround MHP shares, is the necessity to increase occupancy by fixing up or replacing rundown homes and bringing in more MHs. The park owner is faced with the challenge of finding, buying, setting up, selling, and financing homes in order to fill the community. One of the decisions the owner has to make is whether to bring in more singlewides, doublewides, or a combination of both. There are several factors to consider: the physical size of the lots within the MHP, an analysis of the competition, starter home prices in the area, the availability of wholesale homes, the income of the target market.

Our county zoning dictated the type of home we could bring into the community. Homes brought into the county are required to be less than 10 years old, factory vinyl sided, with a shingle roof. These regulations increase the cost of doing business, resulting in higher priced homes. We can bring in SWs or DWs, although it is further stipulated that DWs must have masonry underpinning, a significant additional expense.

The case for acquiring SWs is strong: they can be bought cheaper and set up costs is less. Additionally, because they can be sold for a comparatively high amount relative to basis, they are more profitable than DWs. But we think there’s a strong case for going with DWs, which can be distilled into this: people prefer them. More specifically, DWs feel more like a house. This means being able to:
• compete more effectively against apartment complexes
• attract a higher quality resident
• greater appeal to entities that provide housing: companies, churches, nonprofit organizations, etc.
• hopefully have lower resident turnover

All but one of the existing homes in Madison Woods were SWs. As part of upgrading the park, we decided to bring in DWs. Realizing that residents may come and go, but the homes rarely leave, as park owner we had more at stake in the home than the homeowner. Investing in DWs would create a much nicer community, and ultimately result in a higher property valuation.

The downside to the DW strategy is that it makes finding homes a little more challenging since there are fewer homes available in the wholesale market at a reasonable price. Many times we end up with nothing. DWs are also more capital intensive, since the basis in each home is greater. Our goal is to get the home in and pay off our investor or bank as quickly as possible. At that point, it becomes a cash cow.

That’s our reasoning. The final analysis was to crunch the numbers to make sure the market would support it.

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